Interest commenced to accrue from balance-due date not from date reassessment was issued

Federal appeal | Tax | Income tax | Tax avoidance

Two predecessor corporations, B Corp. and L Ltd., amalgamated with certain other corporations to form taxpayer in August 2004. In filing tax returns for taxation year that ended immediately before amalgamation, B Corp. and L Ltd. reported income based on capital gains, capital losses, net capital gain and net capital loss. By notices of reassessments dated April 7, 2009, total amount of capital losses claimed by each were denied on basis that general anti-avoidance rule (GAAR) applied to transactions that resulted in losses and as result, allowable capital losses were reduced to nil. Since there were then significant taxable capital gains their Part I tax liability was determined to be substantially more than had previously been assessed and interest was charged in relation to increased Part I tax liability for period commencing immediately after balance-due date for each. Tax Court Judge reviewed nature of assessment based on GAAR and completed textual, contextual and purposive analysis of ss. 245 and 161 of Income Tax Act. Tax Court Judge concluded that reassessment based on GAAR did not create tax liability upon issuance of such reassessment and that interest commenced to accrue immediately following balance-due date for particular year. Taxpayer appealed. Appeal dismissed. Requirement that Minister in GAAR cases must establish that tax benefit was not consistent with object, spirit or purpose of provisions relied upon by taxpayer could not justify finding that any liability for any increased taxes would only arise once that reassessment was issued. Nothing in Act stipulated that increased liability as result of reassessment based on GAAR only arose when reassessment was issued. As Part I taxes were payable for year ended August 27, 2004, these taxes were payable under s. 157 by balance-due date for that year. Taxes were therefore outstanding immediately following that date and interest commenced to accrue immediately following balance-due date and not from date that reassessment was actually issued.

Quinco Financial Inc. v. Canada (2018), 2018 CarswellNat 3774, 2018 FCA 137, David Stratas J.A., Wyman W. Webb J.A., and J.B. Laskin J.A. (F.C.A.); affirmed (2016), 2016 CarswellNat 4708, 2016 TCC 190, Randall S. Bocock J. (T.C.C. [General Procedure]).

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